TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 279
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.... CIT(A) c. Departmental Representative as DR d. Dated as dtd. e. Income Tax Act as I.T. Act f. Income Tax Appellate Tribunal as ITAT g. Learned as Ld. h. Under Section as U/s i. Accounting Standard as AS (2) Return of income was filed on 29.09.2012 declaring income under the normal provisions amounting to Rs. 56,81,18,862/- after claiming deduction U/s 80IA amounting to Rs. 113,07,28,240. Tax was paid U/s 115 JB on Book Profit of Rs. 109,12,74,502/-. The return was revised on 29.03.2014 vide e-filing acknowledgment number 154755411290314 declaring income of Rs. 56,81,18,862/-, under normal computation after claiming deduction U/s 80IA amounting to Rs. 113,20,12,434/-. The income U/s 115 JB was revised to Rs. 109,69,73,347/-. Assessment Order dated 23.03.2016 was passed U/s 143(3) of I.T. Act wherein following adjustments were made by the AO to the book profit as reported by the Assessee in return of income: 1. Prior Period Expenses Rs. 2,40,48,802 2. Provision for Railway extraordinary items Rs. 14,09,30,283 3. Adjustment due to change in depreciation Rates Rs. 52,74,00,000 (2.1) The Assessee filed appeal before Ld. CIT(A). Vide order dated 26....
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....corresponding to section 145 of the Act, has been held to be a computation provision [CIT v. BadridasRamrai Shop [1939] 7 ITR 613 (Nag.)]. Further, section 115JA(2) lays down a method for compiling profit and loss account as well as a method for computing book profits, for the purpose of section 115JA of the Act. Section 115JA(4) of the Act makes applicable all the provisions of the Act except those provisions which are provided in the section itself. Accordingly, the provisions of section 145(1) would not apply. Section 145(2) of the Act provides that the Central Government may notify accounting Standards, from time to time, to be followed by any class of assessee or in respect of any class of income. Apparently, as such, section 145(2) is not linked to section 145(1). However, section 145(1) states that business income or income from other sources could be computed, subject to provision of sub-section (2), in accordance with either cash or mercantile system of accounting. Further, the accounting standards notified lay down that any assessee who follows mercantile system of accounting has to follow the notified standards. Under the said Act, a company has to follow accrual s....
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....n the case of assessee, the company formed a committee which advised for change in useful life of the asset and corresponding depreciation amount got increased considerably. Had the depreciation change been effected from retrospective effect, and the effect of such change been given in respective years, the entire burden of depreciation would not have arrived in the current year. There needs to be consistent in the accounting method, else, the book profits can always be managed by the assessee in the year, in which such provisions are applicable vis-a-vis when such provisions are not applicable. Another next basic issue to be considered is the nature and extent of adjustments which could be carried out to the net profit as reflected in the profit and loss account prepared in accordance with the provisions of the Schedule. This issue has been considered by Special Bench of the Income-tax Appellate Tribunal in case of Sutlej Cotton Mills Limited v. ACIT [1993] 45 ITD 22 (Cal.) and in that case it was held as follows (extracted from the head notes): "As regards the question whether the Assessing Officer can recast the book profits, an implied mandate is given to the Assessing Offic....
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....the company shall comply with the accounting standards. (3B) Where the profit and loss account and the balance-sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balancesheet, the following, namely:- (a) the deviation from the accounting standards; (b) the reasons for such deviation; and (c) the financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A: Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the accounting standards until the accounting standards are prescribed by the Central Government under this subsection." i) Thus, financial statements of the company, in the absence of compliance of relevant Accoun....
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....ake a world of difference between conclusions in two cases." Similar views were expressed by the Apex Court in Sun Engg. Works, (198 ITR 297 at page 320). v) Where instances come to the light on examination that excess claims have been made (in the audited accounts), not in accordance with the provisions of Companies Act, the AO would be failing in his duty, if he does not make the correction called for. If the Income tax department comes across (camouflaged) accounts not in accordance with the provisions of Companies Act and accounting standards, it would be duty-bound to disturb the book profits. vi) In a recent decision by Hyderabad Tribunal in the case of Rain Commodities Limited (ITA No 673/Hyd/2009), the Tribunal while placing its reliance on the Apollo Tyres limited, quoted as below. "One of the moot question relevance to the issue before us is whether the assessing officer has power to alter the net profit? In our considered opinion, Yes. YYe agree that it is settled law that assessing officer has the power to alternate the net profit. In the following two cases, the assessing officer can rewrite the profit and loss account i.e. to say that assessing officer should rec....
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....n of the order of Ld. CIT(A) "4. Ground No. 2 is directed against the disallowances made by the AO while calculating book profit under section 115JB of the Act. Ground No. 2.1, 2.2 & 2.3 are against adjustments on account of Prior period expenses of Rs. 2,40,48,802, Exceptional item of Rs. 14,09,30,283 and Adjustment due to change in Depreciation rate of Rs. 52,74,00,000/-. 4.1 On these grounds, the Ld. AR furnished written submission as under: "Section 115JB of the Income Tax Act, 1961 provides for Minimum Alternate Tax (MAT) on companies. A company is required to pay a specified percentage (18.5%) of its book profit as income tax if the tax liability of the company under regular provisions is lower than this amount. Section 115JB of the Income-tax Act mandates for the purpose of this section the profit and loss account shall be prepared in accordance with the provisions of Part II of Schedule VI of the Companies Act 1956.Book profit is required to be calculated by making certain adjustments to the net profit, as shown in the profit and loss account. The additions and deletions to be made to the net profit are laid out in Explanation 1 to section 115JB. This list is an exhausti....
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....nt in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, the Court observed that it is difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act." In the light of the above, our submissions on each of the disallowances made by the Ld. AO are as under: a) Prior Period Expenses and Extraordinary Item: The Ld. AO has discussed the allowability of prior period expenses at pages 12 to 14 of the assessment order. His main contentions are as under: * The basic requirement of preparing profit and loss accounts as per Para II of the schedule under companies Act is that the P & L....
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....uirements in Schedule VI if, in its opinion, it i necessary to grant the exemption in the public interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. (3A) Every profit and loss account and balance sheet of the company shall comply with the accounting standards. (3B) Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account , and balance sheet, the following, namely:- (a) the deviation from the accounting standards ,. (b) the reasons for such deviation ; and (c) the financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 f38 of 1949). as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A : Provided that the standards of accounting s....
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....e Hon'ble Court examined and held in the concluding paragraph as under: "What is clear from the above is that the Assessing Officer should start with the profit available in the profit and loss account prepared in terms of Parts II and III of Schedule VI to the Companies Act. The profit under the said profit and loss account admittedly is Rs. 1,01,37,664. The way the assessee has claimed deduction based on the profit and loss appropriation account is detailed in the order of the Commissioner of Income-tax (Appeals). What is clear from the said order is that the assessee made a further deduction from the profit available under the profit and loss account prepared under the Companies Act. Obviously, unless the deduction made by the assessee is permissible in terms of clauses (i) to (ix) of the Explanation to section 115JA above stated, the same is inadmissible. The assessee has no case that the prior period expenses is an item that could be deducted from the profit in terms of any of the clauses covered by the Explanation to section 115JA. So much so, the claim is not a deduction allowable from the profit taken from the profit and loss account prepared under the Companies Act....
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....ich are 'recognized in a period' should be included in the profit or loss for the period unless an AS requires or permits otherwise, f period items', as given in AS-5. clearly stipulates that prior period items are incomes or expenses which arise 'in the current period' as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. Therefore, the income or expenses relatable to prior period items are those which arise in the current period, i.e.. the period relevant for the purposes of computing the net profit or loss. Clearly, prior period items are to be included in the determination of net profit or loss. Furthermore, Paragraph 7 of AS-5 stipulates that the net profit or loss, inter alia, comprises of extraordinary items and the same should be disclosed on the face of the statement of profit and loss. From this, it is clear that both 'prior period items' as well as 'extraordinary items' are to be included in the determination of net profit or loss. If a prior period item is an expense, it will go towards reducing the net profit or increasing the loss, as the case may be. On the other hand, if ....
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....ome-tax v. Jagatjit Industries Ltd. [339 ITR 382] where the Hon'ble Court allowed prior period expenses even when the computation was under normal provisions of the Act and section 145(2) was applicable. By implication, there is no justification to make addition on account of prior period expenses while applying section 115JB. Under MAT, favourable view was also taken by the Hon'ble Madras High Court in the case of Tamil Nadu Cements Corporation Ltd v CIT [349ITR58], The Hon'ble High Court clearly held that the case of Sree Bhagawathy Textiles Ltd. v. Assistant Commissioner of Income-tax [342 ITR 244] (as was relied upon by the AO) was distinguishable as it was more about the P&L appropriation account. The Hon'ble High Court has held as under: "It is relevant to note herein that the said decision rendered by the Delhi High Court was considered by this court in the decision reported in CIT v. Swamiji Mills Ltd. [2012] 342 ITR 250 (Mad), wherein in preference to the decision of the Delhi High Court reported in CIT v. Khaitan Chemicals and Fertilizers Ltd. [2008] 307 ITR 150 (Delhi) this court applied the decision of the Kerala High Court reported in Sree Bhagawathy....
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....se or decrease of the book profits by extraordinary items." ITAT Bench of Hyderabad in the case of DCIT v. M/s. Ushodaya Enterprises (ITA No. 1419/HYD/2008) followed the decision of rendered in the case of Gulf Oil Corporation vs. ACIT [111 ITD 124] while deciding the issue in favour of the assessee dismissed the ground of department for addition of prior period expenses to net profit as declared in the balance sheet. Without prejudice to our above submissions, we would like to mention that the Ld. AO has disallowed prior period expenses owing to the nature of the transaction, i.e. as per the Ld. AO, prior period expenses are not related to the assessment year and hence should not form part of the profit and loss account of the assessment year. Even if the contention of the Ld. AO is accepted, the Ld. AO has failed to apply the same principle for prior period income shown by the assessee in the profit and loss account of the assessment year. During the year under consideration, the assessee has shown prior period expenses amounting to Rs. 2,40,48,802/- and prior period income amounting to Rs. 5,11,08,612/- in the profit and loss account under the head prior period adjustment. How....
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.... 148) to hold that assessee has deliberately changed the depreciation rates to avoid paying taxes u/s 115JB. * An alternative ground has been taken by the Ld. AO that without prejudice to above the said claim should be disallowed under clause (i) of explanation 1 of section 115JB(2) i.e. amount set aside as provisions for diminution in the value of any asset. Our submissions: The Ld. AO has ignored the detailed submission filed by the assessee to substantiate that the claim is well in accordance with Accounting Standards prescribed by ICAI. In this regard, we submit that as per section 115JB(2), in order to compute book profits under this section, the profit & loss account should be prepared in accordance with the provisions of Companies Act. The relevant provisions are contained u/s 211(3A) to 211(3C) of the companies act 1956 which provides as under- "211 (1)........ (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto. Provided that nothing contained in this sub-....
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....g period involves the exercise of judgement by management in the light of technical, commercial, accounting and legal requirements and accordingly may need periodical review. If it is considered that the original estimate of useful life of an asset requires any revision, the unamortised depreciable amount of the asset is charged to revenue over the revised remaining useful life." Para 13 "The statute governing an enterprise may provide the basis for computation of the depreciation. For example, the Companies Act, 1956 lays down the rates of depreciation in respect of various assets. Where the management's estimate of the useful life of an asset of the enterprise is shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is appropriately computed by applying a higher rate. If the management's estimate of the useful life of the asset is longer than that envisaged under the statute, depreciation rate lower than that envisaged by the statute can be applied only in accordance with requirements of the statute." As per Para 24 of Accounting Standard-5, Net Profit or Loss for the Period, Prior period items and change in accounting po....
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....is conducted by the office of the CAG. The auditors are required to look into the matter of accounting estimates followed by company and its proper disclosure in financial statements. As per SA 540,'Auditing Accounting Estimates, Including Fair Value And Related Disclosures', an auditor is required to assure, with proper audit evidence, that accounting estimates followed in the financial statements are reasonable and does not involve management biasness. An auditor is required to disclose accounting estimates significant risks and possible management bias identified during the course of audit. In the instant case, no qualification has been made by the auditors with respect unreasonableness of accounting estimates. The Ld. AO has failed to establish his claim as to how the assessee has deviated from Accounting Standard prescribed by ICAI. Therefore, the main contention of the Ld. AO that profit & Ioss account of assessee company for AY 2012-13 does not comply with the accounting standards incorrect. Moreover, without appreciating the fact that accounting standard notified u/s 145(2) has no relevance in context of section 115JB, the Ld. AO has heavily relied upon sectionl45....
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....nt, the AO cannot tinker with the profit and loss account to adjust the book profits and the addition made by the Ld. AO may be deleted. The Ld. AO has also contended that the assessee has employed the method of change in depreciation rates as a tool to avoid tax and hence, the Ld. AO has observed that the decision of the Supreme Court in McDowell Co. Ltd. v. Commercial Tax Officer (154 ITR 148) is relevant. The reliance is misplaced in the light of following factors: * The Ld. AO failed to appreciate that the assessee has been assessed under MAT. Whatever MAT liability is paid, the same is available by way of MAT credit for 10 years. The assessee company could not save anything by reducing MAT liability. Infact in FY 2014-15, the assessee has been assessed under normal provisions of computation. The MAT credit available is utilized in FY 2014-15 and remaining would be utilized in years to come. * Not even a single discrepancy could be pointed out by the Ld. AO in support of his claim that the accounts are not as per accounting standard or as required by Companies Act. * The Ld. AO has failed in hi duty by ignoring statutory auditors' report and CAG auditor's report which is i....
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....tion 2 of section 211 provides as under: "(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto." It further provides vide section 3A that "Every profit and loss account and balance sheet of the company shall comply with the accounting standards." Therefore, it is clear from the above that the Profit and Loss Account must comply with the Accounting Standards as contemplated in sub section 3A of the Companies Act, 1956. Sub-Section 3C clarifies that "For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act. 1949 (38 of 1949). as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A : Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed....
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....pplicability of the schedule. However, if on the basis of a bona fide technologic evaluation, higher rates of depreciation are justified, they may be provided with prop disclosure by way of a note forming part of annual account." A perusal of the Circular clarifies that a company can claim depreciation higher than the rate contained in Schedule XIV provided: a. It is based on a bonafide evaluation of the life of the asset, and b. The company has disclosed the facts by way of a note forming part of annual accounts of the company. We humbly submit that the company for the purpose of determining the useful life of the ass had formed a committee comprising senior officials of the company. The life of the asset was determined by the company based on the technical report submitted by such committee to the company. Also, the company has duly disclosed this fact in its Notes to Accounts forming part Annual Account. It would be important to mention here that being a Public Sector Undertaking, accounts of the assessee Company have been audited by statutory auditor appointed by office of CAG and the supplementary audit is conducted by the office of the CAG. Auditor has clearly expresse....
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....nsidered the order passed by the AO and the submission filed by the Ld. AR. Section 115JB of the Act mandates that P & L A/c shall be prepared in accordance with the provisions of part II and part III of schedule VI of the Companies Act, 1956. The "book profit" so calculated is subject to adjustments to be increased by items prescribed in (a) to (i) and reduced by items (i) to (viii) of Explanation 1 of section 115JB of the Act. This clearly implies that any adjustments can only be considered with reference to the items specified in the Act. There are numerous decisions of the Hon'ble Courts wherein it is held that section 115JB is a complete code in itself. The AO has only limited authority to examine whether the books of accounts are maintained as per provisions of Companies Act or the books profit has been arrived as per the relevant schedule thereto. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [255 ITR 273] had held: ''Therefore, we are of the opinion that the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as....
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....nder: "The Tribunal was correct, in law, in holding that the Assessing Officer had failed to appreciate that the net profit for the purpose of section 115J A is to be computed only after deducting the prior period expenses/extraordinary items. The fundamental flaw that had entered into the Assessing Officer's approach was that he was under an impression that the assessee was claiming a reduction in the net profit in terms of clauses (i ) to (ix) of the Explanation to section 115JA(2). The assessee had all along contended that the net profit was to be computed on the basis of the profit and loss account which, in turn, was to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Such a computation of net profit, in view of the prescribed Accounting Standard (AS-5). requires the prior period expenses/extraordinary items to be shown separately. That did not mean that because those items had been shown separately, they did not constitute part of net profit. Paragraph 5 of the Accounting Standard (AS-5) specifically requires that all items of income and expenses which are 'recognised in a period' should be included in the det....
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.... 211 of the Companies Act, the assessee was required to show the prior period items/extraordinary items separately so that their impact on the current profit or loss could be perceived. The fact, that the assessee had adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, did not mean that those items were not to be taken into account in computing net profit as envisaged in section 115JA. Thus, what the assessee had done was only to indicate prior period items/extraordinary items separately. That did not mean that the figure of net profit it was to be arrived at de hors those items In view of the aforesaid discussion, net profit (as referred to in section 115JA) of the assessee-company was to be computed only after deducting the expenses on prior period/extraordinary items which were business expenditure, but were shown separately in the profit and loss account due to the specific requirement of the AS prescribed by the Institute of Chartered Accountants of India, "(emphasis supplied) 4.7 The AO has not given any instance wherein the appellant has not complied with the provisions of part II an....
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....Commodities Ltd. (ITA No. 673/Hyd./2009). The AO also relied on judgement of the Hon'ble Apex court in the case of McDowell and Co. Ltd. vs. Commercial Tax Officer, 154 ITR 148 and was of the view that the appellant had resorted to a colorable device in order to reduce its tax liability under MAT. He was also of the view that the excess depreciation claimed by the appellant due to the higher rate applied by it could be deemed to be the amount set aside as provisions for diminution in the value of the assets and should be ignored while calculating the book profit. Accordingly, he made adjustments to the effect that the enhanced depreciation ignored and, consequently, higher MAT was determined with reference to the adjusted higher book profit. The Ld. AR had submitted that appellant has maintained its account in accordance with the requirement of the Companies Act, 1956 as well as the Accounting Standard-6. The change in the rate of depreciation was also effected in keeping with the same. The appellant had made due disclosure of this fact by way of a note forming part of the Annual Report. The Ld. AR further argued that the appellant is a public sector company and its accounts ar....
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....schedule in relation to assets purchased after the date of applicability of the schedule. However, if on the basis of a bonafide technological evaluation, higher rates of depreciation are justified, they may be provided with proper disclosure by way of a note forming part of the annual account". 4.13 Accounting Standard - 6 (relating to Depreciation Accounting), deals with useful life of assets and defines the same as "either (i) the period over which a depreciable asset is expected to be used by the enterprise; or (ii) the number of production or similar units expected to be obtained from the use of assets by the enterprise". According to clause-8, "Determination of useful life of depreciable asset is a matter of estimation and normally based on various factors including experience with similar types of assets". According to clause -11, "The quantum of depreciation to be provided in an accounting period involves the exercise of judgement by the management in the light of technical, commercial, accounting and legal requirements and accordingly may need periodical review. If it is considered that the original estimate useful life of an asset requires any revision, the unamortized ....
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....he case of the appellant, the situation is the reverse. It has reported lower net profit in the books on account of revision in the rate of depreciation. Prima facie therefore, it is not the case of window dressing by manipulating depreciation. In this regard, it may not be out of place to mention that: a) It is the public sector undertaking owned by the Government of India (Ministry of Railways). b) Its accounts audited by the auditors appointed by the CAG and also subjected to supplementary audit by the Officers of the CAG. c) The auditors have certified that the books of the accounts of the appellant depict true and fair view of its state of affairs. 4.16 The appellant has maintained its accounts as per the Companies Act and has made adequate disclosure in relation to higher charge of depreciation. Section 115JB of the Act requires certain adjustments to the net profit as per the P & L A/c so as to arrive at "book profit" for the purpose of that section. Depreciation is first added back and then the depreciation (excluding the depreciation on account of revaluation of assets) is reduced. The net effect is that any artificial depreciation on account of revaluation of asset....
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....A) dt. 17.02.2016 6. Copy of audited Balance Sheet along with Auditors Report (2.2.2) The Ld. AR further contended that the issue in dispute is covered in favour of the Assessee by Apex Court's decision in the case of Apollo Tyres Ltd. Vs. CIT [255 ITR 273]; which was affirmed in Malayala Manorama Co. Ltd. v CIT 300 ITR 251. The Ld. AR also submitted that the Assessee is Public Sector Undertaking and is subject to audit by Statutory Auditor appointed by Office of CAG (Comptroller and Auditor General) and supplementary audit is further conducted by the Office of the CAG; and he strongly contended that the audit report should be accepted in view of the fact that no qualification has been made by the Auditors with respect to unreasonableness of accounting estimates. (3) We have heard both sides attentively. We have considered the precedents and case laws brought to our notice during hearing before us and/or mentioned in the orders of the AO and Ld. CIT(A). We have carefully perused the materials on record which includes the Paper Book filed by the Assessee. We have given anxious consideration to rival submissions and contentions. (3.1) The contention of the AO that the additional ....
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....preciation in accordance with the provisions of Schedule III of the Companies Act, 2013 or as per the provisions of the Act governing such companies to which second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable; as the case may be, is not hit by Clause (i) of Explanation 1 to Section 115JB of IT Act. Therefore, the AO was in error of law in holding that the additional claim of Rs. 52.74 crores due to change in depreciation rates have resulted in diminution in the value of assets. (3.2) The Ld. AR of the assessee failed to bring to our attention any judicial precedents or any statutory provisions to show that the audit report by statutory auditors and/or the opinion of the statutory auditor is binding or final for all statutory authorities; even if the statutory auditor is appointed by the office of CAG and further even if the office of CAG conducts supplementary audit. The report(s)/opinion(s) of statutory auditor(s) are meant to aid and assist the statutory authorities and are not aimed to curtail their discretion, power or role; unless specifically provided under law or intended by necessary implication of specific provisions und....
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....(3.4) We now come to the contention of Ld. AR of the assessee, that the issue in dispute is covered in favour of the assessee by decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs CIT (supra). The AO did not accept this contention of the Assessee, taking note of the order of Hon'ble Supreme Court in the case of Padmasundara Rao v. State of Tamil Nadu (255 ITR 147 at page 153) in which it was held as under: "Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the set-ting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board, [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases." (3.4.1) Similar views were expressed by the Apex Court in the case of Sun Engineering Works (198 ITR 297 at page 320). (3.4.2) With this background, we ....
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....A colourable device to evade tax has to be rejected. (3.4.3) We have already held in foregoing paragraph (3.2.1.1) that for the purpose of determination of book profits, the statutory role of Registrar of Companies to examine and satisfy that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act, has the mandate of the Supreme Court; and further, that report(s)/opinion(s) of statutory auditor(s) and the reports / opinions / recommendations as a result of Supplementary Audit are not final : these are not only subject to approval by the company in its general meeting, but also subject to examination by Registrar of Companies and his satisfaction that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act. However, on the perusal of records before us, which includes the Assessment Order, the order of the Ld. CIT(A), the Paper book filed by the Assessee, Form 35, Form 36 etc; we find that the both the lower authorities, AO as well as Ld. CIT(A), have not considered whether, after examination by Registrar of Companies, whether Registrar of Companies was satisfied that the accounts of the asses....